As a young investor, it is always beneficial to start investing your money from a young age. This enables you to have a longer investment horizon and earn good returns. As a beginner in the investment area, you can choose from various options, including bank deposits, fixed deposits, stock market, mutual funds, and more.
Compared to other forms of investment that can be volatile or depend on market conditions, a fixed deposit (or FD) is a safe & secure investment option that gives decent returns on your invested amount.
Why are fixed deposits a better alternative to other financial instruments? Let us look at some of its advantages.
As an investment for beginners, here are 6 advantages of a fixed deposit account for beginners:
An FD is easy to open in any bank or financial institution, thus encouraging you to save more from your income early in life. While most banks do pay out interest on your savings account, a fixed deposit allows you to earn higher interest.
If you do not prematurely break the fixed deposit and withdraw the money, you are assured of a fixed return right from the start of the deposit.
For beginners who are new to investments, fixed deposits offer a risk-free avenue that encourages the habit of savings. Remember that successful investors have always started through smaller investments like FDs. Plus, FDs are easier to understand and can be opened through any online channel or by visiting your bank branch.
Unlike other investment instruments, FDs offer assured and guaranteed high returns. This means that as an investor, you know exactly what the FD maturity amount – or the returns at the end of the FD tenure – will be.
Based on the desired maturity amount, you can plan how much money to invest and for how long at what interest rate. This is useful when you want to take care of any future expenditure like higher studies or home purchases.
If you are averse to any form of capital risks, then fixed deposits are your best investment option. As interest rates in FDs are fixed, you do not have to worry about fluctuating returns, as in stock or gold investments that are dependent on external conditions.
Many young investors are not aware of this, but a fixed deposit can help you save taxes. Under Section 80C of the Indian Income Tax Act, you can deduct up to INR 1.5 lakhs from your current taxable income.
This means that if you have invested INR 1 lakh in fixed deposits in the current financial year, you can claim a tax deduction of 1 lakh from your taxable income – thus enabling you to pay less taxes.
The flip side is that any interest you earn from your fixed deposits is currently taxable in India.
Can you start an FD account as an emergency fund? Absolutely yes. For example, if you expect a major expense after 6 months or 1 year, you can start a short-term emergency fund using FDs to cover those expenses.
Additionally, fixed deposits are also useful when you are facing a cash or liability crunch. In these circumstances, you can break into your existing FD and withdraw the money. FD withdrawals before maturity do attract bank penalties – plus the loss of interest that you could have earned.
If you do not wish to break into your FD, another option is to take a loan against your fixed deposit to cover unforeseen expenses. Depending on your bank, you could get a loan of up to 90% of the deposited money.
A fixed deposit offers flexibility in both the lump sum amount you want to invest and the period (or tenure) for which you want to invest. For example, you can start an FD by investing just INR 1,000 for a tenure of just 1 week.
Fixed deposits offer the most risk-averse way of fulfilling your financial goals, like buying a vehicle or getting married. As a rule, try to invest in bank FDs that offer the highest interest rate for a fixed period.
The higher the interest rate, the faster you can double your invested amount. You can follow the Rule of 72 for calculating how long it takes to double your investment. For example, if you invest in a bank FD that offers a 9% interest rate, it will take approximately 8 years (72 divided by 9) to double your invested amount.
Can fixed deposits ensure a regular cash flow for the investors? Yes, this is possible through the non-cumulative FD. How does this work? Regular (or cumulative) FDs accrue the earned interest to the existing FD account at regular intervals (for example, 1 year). Hence, investors have access to their returns (deposit plus accrued interest) only at maturity.
On the other hand, non-cumulative FDs pay out the accrued interest regularly to the depositors. Depending on the bank, you can be paid the accrued interest yearly, every 6 months, or even monthly. While the overall return from non-cumulative FDs is lower, they can help you in maintaining cash flow at regular intervals.
Here are 7 reasons why you must go for a fixed deposit account with Shriram City:
As a safe investment for beginners, fixed deposits offer multiple benefits like guaranteed high returns, risk-averse investment, and easy liquidity. A fixed deposit is a safe & secure investment option that is ideal for young investors like you among all the other instruments.
Shriram City Union Finance offers fixed deposits at attractive interest rates and a range of other benefits. Get in touch with us through our toll-free customer number or book your fixed deposit today with our online form. Start your investment journey today!